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Economist Devastates “War for Oil” Dogma

Aletho News

Professor Cyrus Bina relates the facts that the oil industry and markets have been globalized. The various theories that have been put forward from both the left and the right regarding war rationales that rely on demonisation of OPEC are essentially nothing more than outdated fear mongering. Cyrus Bina has been vindicated by more recent events.

Cyrus Bina:

The history of Middle Eastern oil, including its subsequent development into a modern industry, can be divided into three distinct stages: (1) the era of international cartels, 1901-1950; (2) the era of transition, 1950-1972; and (3) the era of globalization since the mid-1970s. A slightly different historical periodization can be provided for the U.S. domestic oil industry: (1) the era of classical cartelization and early oil trusts of 1870-1910; (2) the era of regulated neo-cartelization of 1911-1972; and (3) the era of globalization since the mid-1970s. A close examination of the entire 1870-1970 period would reveal that administrative pricing under the International Oil Cartel (known as Seven Sisters) were predominantly the rule in the oil business. The cartel, however, began to lose its grip during the 1950s and 1960s. Proliferating market forces, in con-junction with the development of capitalist social relations in the colonial and semi-colonial oil regions, had overcome the colonial concessions and worldwide administrative control of oil under the international oil cartel. The oil crisis of 1973-1974 was but the symptom of this transformation toward globalization. Moreover, the so-called “OPEC offensive”—which was misperceived by both the right and the left as the cause for re-control of oil market/prices —was but the catalyst of this de-cartelization and globalization of oil.

The war-for-oil scenario, as a popular myth, ignores the deeper understanding of the complex web of contradictions and regulating dynamics of today’s economy and polity. Yet, the very anachronism of this scenario is understandable in the view of the anachronistic U.S. behavior that is so dreadfully attempting to reverse the loss of American hegemony against the time and, more importantly, history. Therefore, parallel with the anachronistic reality of U.S. colonial conduct in Iraq, the anachronism of the “oil grab” becomes “reality” in the minds of those who chant “No Blood for Oil.” Yet, holding a parallel between the U.S. invasion of Iraq and the control of oil is a far fetched proposition, if not an outright illusion. For, since the mid 1970s, the material bases and dynamics of post-cartelization and globalization of oil render the physical access, prearranged inter-company allocation, and indeed administrative control and pricing of oil redundant. This rather counter intuitive reality also renders any connection between the war and oil—other than given disbursement to finance matters such as the establishment of a puppet government—superfluous.

Nevertheless, in an interview, James Schlesinger remarked: “The United States [Bush, 41st] has gone to war now, and the American people presume this will lead to a secure oil supply. As a society we have made a choice to secure access to oil by military means. The alternative is to become independent to a large degree of that secure access.” It is indeed surprising that a market worshipping Chicago School economist fails to see the formation of (spot) oil prices within interconnected and unified markets since the post-cartelization of oil in the 1970s. Schlesinger, on the one hand, stresses the phrase “secure access” and, on the other hand, underscores the alternative of “independence,” as if one can insulate the U.S. oil industry from the rest of transnational oil. This thesis provides a convenient cover for two separate strategic projects: justifying the war without exposing its real cause, and creating panic by playing the familiar scarcity card to extend the exploration of oil in the pristine U.S. regions of wildlife such as ANWAR. In this context this was also what the Bush administration and Cheney’s “Task Force on Energy” probably had in mind when they were referring to “secure oil.”

In a nutshell, the above thesis ignores (1) the mutuality of oil producers and oil consumer, the need of both sides in selling and purchasing in the competitive global oil market, (2) the interdependence of oil regions in the present interdependent world, (3) the formation of global prices based on the cost of highest cost (U.S.) producer, not the cost of individual oil regions, and (4) the formation of differential oil rents, given the existing differential (regional) costs, through competition. Here, the dramatized “oil dependency” is but an empty phrase in the view of the trans nationalization of oil since the 1970s.

On the opposite side, hardly anyone on the left fully recognized the implication of uncritical acceptance of the above tautological thesis. Thus, the left-wing liberals and the radical left adopted this theory and dressed it up in leftist garb before applying it to either the question of war or the problem of environment. Michael Klare is one of the remarkable defenders of this thesis on the left. He declares: “Two key concerns underlie the Administration’s [Bush, 43rd] thinking: First,the United States is becoming dangerously dependent on imported petroleum to meet its daily energy requirements, and second, Iraq possesses the world’s largest reserves of untapped petroleum after Saudi Arabia.” Klare, however, takes this thesis one step further to an improvised level of neo-Malthusian scarcity:

“Global demand for many key materials is growing at an unsustainable rate. As the human population grows, societies require more of everything (food, water, energy, timber, minerals, fibers, and so on) to satisfy the basic material requirements of their individual members…. Because the production and utilization of these products entails [sic.] the consumption of vast amount of energy, minerals, and other materials, the global requirement for many basic commodities has consistently exceeded the rate of population growth.”

This worn-out neo-Malthusian message has again been reiterated in Blood and Oil. Yet, Klare, who is perplexed by the gravity of U.S. involvement in Iraq is “compelled … to conclude that petroleum is unique among the world’s resources that it has more potential than any of the others to provoke major crises and conflicts in the years ahead.” Again for Klare (and for many on the left) the specificity of the cause-and-effect seems to have no bearing on this historically unique epochal conflict and his fascination with oil is so intensive that he fails to realize a need for a specific and independent analytical proof.

I contend that, at best, the war-for-oil scenario is a text with out a context. On a logical level, the oil scenario is a remarkable example of a post hoc, ergo propter hoc fallacy, misplacing the real cause of U.S. military intervention. Moreover, by neglecting the depth of the last two decades of global transformation, the protagonists on the left and the right both have adopted a very voluntaristic-functionalist view of the U.S. global role. The left tends to capitalize on a voluntaristic interpretation of the concept of hegemony and the functionalist pivot of U.S. military might. For Klare, though, the global conflict “is entirely the product of geology.” The right, on the other hand, tends to rely on the notion of a “unipolar” world and wishful arguments of the “bound to lead” variety, without adequate attention to the emerging new polarities associated with the loss of American hegemony and the forces of globalization.

Others on the left, who are obsessively fond of the war-for-oil scenario, argue that this war may not have been for oil in the interest of U.S. capitalism as a whole, but rather in the interest of “U.S. oil corporations.” Hence, they propose that the cost of war amounts to a huge subsidy by the entire society given to the oil industry. This is a fictitious argument derived from the blind assumption of “direct access” and physical control of oil, and absolute denial of the reality of global transformation of the oil industry in the early 1970s. It is also crude and arbitrary, given the reduction of the material interests of the entire (U.S.) capitalist class to the alleged interests of its tiny fraction. And, appealing to casual observation, such as watching news from the Iraqi oil fields and the arrival of oil service contractors for “rebuilding” Iraq, is not sufficient to turn away from serious analysis. The truth is that this adventurous undertaking is in the interest of neither.

Finally, attaching significance to the switching of the currency, from dollar to euro, by OPEC oil producers is unjustified. As Paul Krugman pointed out in a short note, any possible shift from the dollar to the euro on the part of OPEC will result in a “small change,” for the U.S. economy, much smaller than the switching made already by the “Russian Mafia.” However, many on the left are not losing any opportunity to grasp this straw.

http://www.heterodoxnews.com/htnf/htn7/bina.pdf

January 9, 2014 Posted by aletho | Deception, Economics, Timeless or most popular | Energy, Iraq, Mexico, Michael Klare, Saudi Arabia, United States | 1 Comment